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Many retailers stand to suffer from 'showrooming,' study finds

Shoppers visit a store to try out products only to leave and find them cheaper online.

By AMY MARTINEZ The Seattle Times

Updated:
02/28/2013 05:42:16 AM EST

The rapid rise in the use of smartphones has brought a new curse on brick-and-mortar retailers: showrooming.

That's when shoppers visit a store to try out products and then buy them cheaper online from Amazon.com or another website -- often making their purchases on a smartphone in plain view of the store's staff.

To combat showrooming, Best Buy and Target recently promised to match the prices of online competitors, but they're not the only chains that should be worried about losing sales to Amazon.

A new study by Seattle startup Placed identifies home-goods chain Bed Bath & Beyond as most at risk of becoming a showroom for Amazon, followed closely by PetSmart and Toys R Us.

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The survey -- based on responses from nearly 15,000 U.S. consumers, as well as an analysis of their movements through the physical world -- also puts Costco Wholesale on notice that its customers have no qualms about showrooming.

While it's unclear how many Costco customers use the chain to test-drive products before buying them from Amazon, Placed believes there's enough overlap to raise the warning flag.

Amazon Prime members, who pay $79 a year for free two-day shipping of their online orders, are 45 percent more likely than the average consumer to shop at Costco, the study found. (By comparison, Costco members pay an annual fee of $55, or $110 if they want a 2 percent reward on most purchases.)

Also, Prime members who tend to showroom are 38 percent more likely than the average showroomer to visit Costco, meaning the chain's customers regularly shop on Amazon and are adept at using technology to find deals.

Amazon promotes a free mobile app to encourage customers to check prices on its website while browsing in stores. What's more, it's known to play hardball: In 2011, it offered a special discount to holiday shoppers who made a purchase on Amazon after using its price-check application.

"I think Costco should be scared," said David Shim, founder and CEO of Placed, a location-analytics firm backed by Madrona Venture Group. "For Amazon to carry bulk items is not a stretch. It could quickly adjust its merchandise mix and highlight the fact that it has similar products as Costco and can get them to your house in two days."

This isn't the first time that Seattle-based Amazon has emerged as a potential threat to Costco. Two years ago, Amazon bought Quidsi, the corporate parent of Diapers.com, Soap.com and BeautyBar.com, to expand its online selection of consumer staples.

The Internet giant also offers discounts to customers who sign up for regular purchases of household basics through its Subscribe & Save program, and it operates a local grocery-delivery service called AmazonFresh.

"There are categories critical to Costco's success that are in Amazon's cross hairs, like consumer electronics -- the flat-panel television sets you see as soon as you walk in the front door -- as well as jewelry," said Eric Best, CEO of Seattle-based Mercent, which helps businesses with their online strategies.

At the same time, Costco sells some things not likely to take hold online because their shipping costs are high relative to their price tags, he said, citing lawn fertilizer as one example.

Best noted that two-thirds of Mercent's retail customers use its software to automatically change their prices based on what their online competitors are up to.

Showrooming, he added, is the top "strategic concern that our retail customers have identified for 2013."

The Placed study concludes that showrooming is not media hype, but rather a serious threat to physical stores.

Shim recommends that besides price-matching, stores also provide fast and easy returns or a unique merchandise mix to set themselves apart.

"If you're not being cannibalized by showrooming, you can take steps now to go on the offensive," he said.